Answer:
The price of the stock will be $18.04
Explanation:
The price of the stock will be the same as the present value of the future dividends including the liquidating final dividend of 20.00 discounted at 11%
present value of the dividends:
Present Value of Annuity
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 2
time 9
rate 0.11
[tex]2 \times \frac{1-(1+0.11)^{-9} }{0.11} = PV\\[/tex]
PV $11.0741
Then, PV of the liquidating dividend:
PRESENT VALUE OF LUMP SUM
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 20.00
time 10.00
rate 0.11
[tex]\frac{20}{(1 + 0.11)^{10} } = PV[/tex]
PV 7.04
$11.07 + $7.04 = $ 18.04
